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Item 7. Management’s Discussion and Analysis

2025-03-05 compared with 2024-03-06 · 204 added, 123 removed, 199 unchanged (62% of the section changed)

5 unchanged sentences

Risk Factors."

We operate in the upstream segment of the oil and natural gas industry and are focused on steadily growing conventional reserves, production and cash flow through the acquisition, exploration, development and production of oil, natural gas and NGLs primarily in the Permian Basin in West Texas and Southeastern New Mexico.

We intend to continue to develop our reserves and increase production through development drilling and exploration activities and through acquisitions that meet our strategic and financial objectives.

Financial and Operating Highlights

Financial and operating results reflect the following:

• Increased total net equivalent production by 62% to 18.6 MBoe/d for the year ended December 31, 2023, as compared to the year ended December 31, 2022

• During the year ended December 31, 2023, 24 gross (18.2 net) horizontal wells were brought online to production

• Realized average combined price on production sold of $54.91 per Boe, before derivative settlements, during the year ended December 31, 2023, including $75.62 per barrel for oil

• Generated cash flow from operations of $207.2 million for the year ended December 31, 2023

• Incurred total accrual (activity based) capital expenditures before acquisitions of $135.8 million for the year ended December 31, 2023 as compared to $123.1 million for the year ended December 31, 2022

• Paid cash dividends on common shares of $27.7 million during the year ended December 31, 2023

• $15.3 million in cash and $356.0 million in total debt as of December 31, 2023

Riley Permian is a growth-oriented, independent oil and natural gas company focused on horizontal drilling of conventional oil-saturated and liquids-rich formations that produce long-term stable cash flows in the Permian Basin.

The majority of our acreage is located in Yoakum County, Texas and Eddy County, New Mexico.

Our strategic business objectives include enhancing the rate of return on our invested capital, generating sustainable free cash flow, maintaining a strong and flexible balance sheet while maximizing our returns to shareholders.

We implement this strategy primarily through identification and capture of attractive development opportunities, optimization of our assets and pursuing complementary growth opportunities that increase our scale and meet our strategic and financial objectives.

Recent Developments

Market Conditions, Commodity Prices and Interest Rates

and global economies and markets have experienced heightened volatility following impactful geopolitical events, the effects of widespread inflation and the impact of significantly higher interest rates.

Prices for oil and natural gas are determined primarily by prevailing market conditions, which have been and could continue to be volatile.

The combination of geopolitical events, inflation and the rising interest rate environment has led to increasing forecasts of a U.S.

or global recession.

Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.

The Company cannot estimate the length or gravity of the future impact these events will have on the Company's results of operations, financial position, liquidity and the value of oil and natural gas reserves.

New Mexico Acquisition

On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for an adjusted purchase price of $325 million.

The New Mexico Acquisition was funded through a combination of borrowings under the Company's Credit Facility and proceeds from the issuance of $200 million of Senior Notes.

Power Joint Venture

In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing a new power infrastructure for onsite, baseload power generation using produced natural gas for its Champions Field.

The Company has an initial 30% investment in the joint venture company, RPC Power LLC, and is committed to providing its portion of capital.

Construction of the onsite power generation facility was predominately completed during 2023 with temporary power generation beginning in November 2023 and the onsite power generation facility expected to be operational in spring of 2024.

Geopolitical and Economic Conditions

Commodity prices remain volatile.

General domestic and international political and economic conditions, including the military conflict between Russia and Ukraine, conflicts in the Middle East, and the U.S.

and global response to such conflicts, global economic growth, actions of OPEC+ countries, and implementation of tariffs could prolong market volatility or cause a decline in commodity prices.

Inflation continues to be an ongoing concern.

Although inflation moderated somewhat, inflationary pressures remain elevated, which in turn may cause our capital expenditures and operating costs to increase.

During inflationary periods, interest rates have historically increased.

Increased interest rates could have the effects of raising our cost of capital and the potential for depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

The Company cannot estimate the length or gravity of the future impact these conditions will have on the Company's results of operations, financial position, liquidity and the value of the oil and natural gas reserves.

2024 New Mexico Asset Acquisition

On May 7, 2024, the Company completed the acquisition of oil and natural gas properties in Eddy County, New Mexico ("2024 New Mexico Asset Acquisition"), which included 13,900 contiguous net acres adjacent to the Company's existing acreage in Eddy County, for a cash purchase price of approximately $19.1 million plus $0.5 million in transaction costs.

The 2024 New Mexico Asset Acquisition was accounted for as an asset acquisition, with the final purchase price and transaction costs being capitalized to oil and natural gas properties.

The acquisition was funded through a combination of proceeds from the 2024 Equity Offering and cash on hand.

RPC Power Joint Venture

In January 2023, the Company formed a joint venture, RPC Power, for the purpose of constructing, owning and operating power generation assets which became fully operational in September of 2024.

These assets use the Company’s produced natural gas to power a portion of our oilfield operations in Yoakum County, Texas.

In May 2024, the Company entered into the Second Amended and Restated Limited Liability Company Agreement ("A&R LLC Agreement") to expand the scope of our joint venture to include the constructing, owning, and operating of additional new power generation and storage assets, which are expected to be operational beginning in late 2025 through 2026, for the sale of energy and ancillary services to ERCOT.

In November 2024, the Company signed the Second Amendment to the A&R LLC Agreement, which increased the capital commitment for each owner from $42.5 million to $51.5 million.

As of December 31, 2024, the Company owned 50% of the joint venture.

On February 28, 2025, the Company contributed an additional $6.3 million to the joint venture which increased our total capital contributions to $30 million.

2024 Equity Offering

On April 8, 2024, the Company issued and sold 1,015,000 shares of common stock at a price of $27.00 per share.

Net proceeds from the issuance were approximately $25.4 million, after deducting underwriting discounts and commissions and expenses.

Credit Facility Amendment

On December 13, 2024, the Company entered into the sixteenth amendment to the Credit Facility to, among other things, extend the stated maturity date from April 2026 to December 2028 (or if any Senior Notes are then outstanding, the date that is 181 days prior to the earliest stated maturity date of such Senior Notes, in this case October 2027), increase the borrowing base from $375 million to $400 million, and add one new lender to the lending group.

Gas Purchase Agreement

We believe the successful execution of the Company's New Mexico development plan is dependent upon maintaining operational control and securing reliable processing and downstream markets for our natural gas.

As part of this plan, the Company signed a long-term gas purchase agreement for our New Mexico field with a new midstream counterparty, which includes dedicated acreage for a significant portion of the Company’s oil and gas assets in New Mexico, reimbursement by the Company of construction costs incurred by the midstream counterparty to connect to the Company’s pipeline (subject to a monetary cap of $18.7 million) and an initial 15-year term from the in-service date.

In conjunction with the agreement, the Company intends to construct, own and operate low and high-pressure gathering lines and compression facilities that will connect to our new high capacity 20-inch natural gas pipeline to be constructed by the Company and designed to handle gas volumes of up to 150 MMcf per day.

We currently anticipate the in-service date will be before the end of 2026.

The Board of Directors approved an aggregate of approximately $130 million in capital expenditures to complete these initial projects of our midstream development plan.

Oil & Gas Property Impairments

At December 31, 2024, we recognized a non-cash $11.3 million impairment of proved properties comprised of a $9.5 million impairment in Texas, outside of the Champions field, and a $1.8 million impairment in New Mexico, outside of the Red Lake field.

The impairments were primarily driven by a reduction in reserve volume due to lower well performance assessments based on historical trends.

The affected areas included nine operated producing wells.

Impairment of EOR Project

At September 30, 2024, the Company recorded a $30.2 million impairment related to the discontinuation of our EOR Project, including a $28.9 million non-cash impairment and a $1.3 million cash impairment related to the termination of the Kinder Morgan CO 2 contract.

Select equipment from the EOR Project was salvaged for use in the Company's conventional vertical and horizontal development programs.

Results of Operations

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Natural gas (MMcf) 7,484 5,865

NGLs (MBbls) 1,486 1,006

Total (MBoe) 8,252 6,786

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NGLs ($ per Bbl)

Combined ($ per Boe) $ 54.91 $ 76.05

$ 1.53 $ 6.87

Average Realized Prices, including derivative settlements:

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NGLs ($ per Bbl) (3)

Combined ($ per Boe) $ 52.38 $ 58.13

$ 1.53 $ 6.87

(1) The Company's calculation of the effects of derivative settlements includes losses on the settlement of its commodity derivative contracts.

These losses are included under other income (expense) on the Company’s consolidated statements of operations.

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(1) The Company's oil, natural gas and NGL sales are presented net of gathering, processing and transportation costs.

These costs, related to natural gas and NGLs, at times exceeded the price we received and resulted in negative average realized prices.

(2) The Company's calculation of the effects of derivative settlements includes gains and losses on the settlement of our commodity derivative contracts.

These gains and losses are included under other income (expense) in the Company’s consolidated statements of operations.

(3) During the periods presented, the Company did not have any NGL derivative contracts in place.

Oil and Natural Gas Revenues

Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing.

Revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as midstream counterparty fees and deducts.

Realized prices and revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as gathering, processing and transportation costs.

Gathering, processing and transportation costs are allocated across natural gas and NGLs based on revenue, which leads to heightened fluctuations in such cost allocations across periods.

Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives.

Our revenues may vary significantly from period to period as a result of changes in the volume of production sold or changes in commodity prices.

The Company’s total oil and natural gas revenue, net increased $53.3 million, or 17%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The Company’s realized average combined price on its production for the year ended December 31, 2023 decreased by $21.14 per Boe, or 28% compared to the year ended December 31, 2022.

The Company’s total oil and natural gas sales, net increased $37.2 million, or 10%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The following table presents the Company's oil and natural gas sales prior to and net of gathering, processing and transportation costs:

Years Ended December 31,

(In thousands)

Oil sales, gross

$ 408,983 $ 363,151

Gathering, processing and transportation costs

Oil sales, net

$ 408,935 $ 363,125

Gas sales, gross

$ 2,480 $ 9,569

Gathering, processing and transportation costs

$ (1,412) $ 2,612

NGL sales, gross

$ 31,591 $ 22,455

Gathering, processing and transportation costs

29,313 15,545

NGL sales, net

$ 2,278 $ 6,910

Oil and natural gas sales, gross

$ 443,054 $ 395,175

Gathering, processing and transportation costs

33,253 22,528

Oil and natural gas sales, net

$ 409,801 $ 372,647

For the year ended December 31, 2024, oil revenues increased by $45.8 million, or 13%, compared to the year ended December 31, 2023.

Of the increase, $147.2 million was attributable to an increase in volume, which was partially offset by $82.7 million attributable to a decrease in our realized price.

Volumes increased by 49%, while realized prices decreased by 19% as compared to the year ended December 31, 2022.

The oil and natural gas properties acquired in the New Mexico Acquisition contributed $71.9 million to the Company's oil revenues for the 2023 period.

• Oil volumes increased during the year ended December 31, 2023 due to oil and natural gas assets acquired in the New Mexico Acquisition, production from new wells and workovers performed on existing wells.

During the year ended December 31, 2023, we brought online 24 gross (18.2 net) horizontal wells.

The New Mexico Acquisition contributed oil volumes of approximately 931 MBbls for the 2023 period.

• The average WTI price decreased by $17.32 per Bbl during the year ended December 31, 2023 when compared to the year ended December 31, 2022.

The following table summarizes the effect of price and volume changes on oil revenues:

Oil sales, net for the year ended December 31, 2023

Oil sales, net for the year ended December 31, 2024

Our realized oil prices decreased by $1.52 during the year ended December 31, 2024, when compared to the year ended December 31, 2023, which corresponded with a $0.95 decrease in the average WTI price during the same period.

An increase in basis differentials accounted for the remaining difference.

Daily oil volumes increased by 15% due to increased production from new wells turned to sales in our Champions field as well as the 2023 and 2024 New Mexico Acquisitions.

Natural gas revenues

• For the year ended December 31, 2023, natural gas revenues decreased by $8.1 million, or 76%, compared to the year ended December 31, 2022.

Realized natural gas prices decreased by 87% partially offset by an increase in volumes of 82% as compared to the year ended December 31, 2022.

The oil and natural gas properties acquired in the New Mexico Acquisition contributed $2.1 million to the Company's natural gas revenues for the 2023 period.

• Natural gas sales volumes increased during the year ended December 31, 2023 compared to the year ended December 31, 2022 due to oil and natural gas properties acquired in the New Mexico Acquisition, production from new wells and workovers performed on existing wells.

The New Mexico Acquisition contributed 2,179 MMcf to the Company's natural gas volumes for the 2023 period.

• The average Henry Hub price decreased by $3.92 per Mcf during the year ended December 31, 2023 compared to the year ended December 31, 2022.

NGLs revenues

For the year ended December 31, 2024, natural gas revenues decreased by $4.0 million compared to the year ended December 31, 2023.

The following table summarizes the effect of price and volume changes on natural gas revenues:

Gas sales, net for the year ended December 31, 2023

Gas sales, net for the year ended December 31, 2024

Our realized natural gas prices, which were negative for the year ended December 31, 2024, decreased by $0.64 compared to the year ended December 31, 2023, due to weak Permian Basin natural gas prices that did not provide for full recovery of the Company's allocated gathering and processing costs.

This corresponded with a $0.34 decrease in the average Henry Hub price during the year ended December 31, 2024, and an increase in basis differentials due to regional supply imbalances.

For the year ended December 31, 2024, NGL revenues decreased by $4.6 million, or 67%, compared to the year ended December 31, 2023.

Realized prices decreased by 69%, partially offset by an increase in volumes of 126% as compared to the year ended December 31, 2022.

The oil and natural gas properties acquired in the New Mexico Acquisition contributed $5.3 million to the Company's NGL revenues for the 2023 period.

• NGL sales volumes increased during the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the New Mexico Acquisition, production from new wells and workovers performed on existing wells.

The oil and natural gas properties acquired in the New Mexico Acquisition contributed 451 MBbls to the Company's NGL volumes for the 2023 period.

The following table summarizes the effect of price and volume changes on NGL revenues:

NGL sales, net for the year ended December 31, 2023

NGL sales, net for the year ended December 31, 2024

Our realized NGL prices decreased by $5.34 during the year ended December 31, 2024, when compared to the year ended December 31, 2023.

Realized prices decreased due to higher allocated gathering and processing costs from weak Permian Basin natural gas prices that limited the full recovery of the Company's allocated gathering and processing costs.

This was partially offset by a 48% increase in volumes due to additional third party processing capacity that came online in 2024.

Contract Services - Related Party

The following table presents the Company's revenue and costs associated with its contract services - related party transactions:

The following table presents the Company's revenue and costs associated with our contract services - related party transactions:

Year Ended December 31,

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(1) The Company’s contract services - related parties revenue is derived from master services agreements with related parties to provide certain administrative support services.

(2) The Company's cost of contract services - related parties represents costs specifically attributable to the master service agreements the Company has in place with the respective related parties.

(1) The Company’s contract services - related parties revenue was derived from master services agreements with related parties to provide certain administrative support services.

(2) The Company's cost of contract services - related parties represented costs specifically attributable to the master service agreements the Company had in place with the respective related parties.

The management services agreement with Riley Exploration Group, LLC was terminated effective May 31, 2024, and the management services agreement with Combo Resources, LLC was terminated effective January 31, 2024.

See Note 9 - Transactions with Related Parties in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules for more information.

Costs and Expenses

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Impairment of oil and natural gas properties $ 11,317 $ 9,760

Other impairments $ 30,158 $ —

Administrative costs $ 26,551 $ 26,569

4 unchanged sentences

(Gain) loss on derivatives, net $ 1,665 $ (6,193)

$ (6,193) $ 51,574

Loss from equity method investment $ 721 $ 218

Income tax expense $ 28,074 $ 34,461

1 unchanged sentence

LOE are the costs incurred in the operation and maintenance of producing properties.

Expenses for electricity, compression, direct labor, saltwater disposal and materials and supplies comprise the most significant portion of our lease operating expenses.

Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period.

For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed.

Certain operating cost components, such as saltwater disposal associated with produced water, are variable and increase or decrease as hydrocarbon production levels and the volume of completion water disposal increases or decreases.

The Company’s LOE increased by $12.6 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

For the year ended December 31, 2023, the increase was driven by a $20.0 million increase due to higher production, including $13.3 million attributable to the New Mexico Acquisition, and a $10.1 million increase due to higher

workover expense, including $7.6 million attributable to the New Mexico Acquisition, partially offset by a $3.7 million decrease primarily related to lower utility rates.

This increase was driven by a $5.5 million increase due to more workovers primarily in our Red Lake field, a $4.5 million increase in our Champions field due to higher production volumes and a $3.4 million increase due to the inclusion of LOE expenses associated with our 2024 New Mexico Asset Acquisition, partially offset by a decrease in certain expenses, primarily chemical, fuel and repair costs.

On a LOE per BOE basis, the additional volumes fully offset the $12.6 million increase as the 2024 LOE per BOE was flat when compared to 2023.

Production and Ad Valorem Tax Expense

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Ad valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.

Production and ad valorem taxes increased by $6.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Production taxes increased primarily due to increases in our oil and natural gas sales, net, including revenues from production associated with the oil and natural gas properties acquired in the New Mexico Acquisition, partially offset by lower commodity prices.

Ad valorem taxes increased for the year ended December 31, 2023 based on higher estimated property values and higher tax rates for the current taxable period.

In addition, the Company became subject to a waste emissions charge in 2024 related to methane emissions in excess of specified limits under new legislation from the EPA.

This amount was recorded in production taxes for 2024.

Production and ad valorem taxes increased by $3.9 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increases in our oil and natural gas sales, net and $0.8 million from the new waste emissions charge.

Exploration Costs

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(1) The Company determined that an exploratory well was not capable of producing commercial quantities and expensed the associated drilling costs during the year ended December 31, 2023 .

Depletion, Depreciation, Amortization and Accretion Expense

Depletion, depreciation and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs.

DD&A expense is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs.

All costs incurred in the acquisition, exploration and development of properties (excluding costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration activities) are capitalized.

3 unchanged sentences

The liability accretes each period until it is settled or the well is sold, at which time the liability is removed.

Depletion, depreciation, amortization and accretion expense increased by $32.9 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase for the year ended December 31, 2023 was primarily due to depletion associated with the oil and natural gas acquired in the New Mexico Acquisition and higher production on historical properties along with a higher depletion rate on the historical properties.

DD&A expense increased by $9.8 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase for the year ended December 31, 2024, was primarily due to higher production in our Champions field and the inclusion of the 2023 New Mexico Acquisition for the full year as well as the 2024 New Mexico Asset Acquisition for part of the year.

Impairment of Oil and Natural Gas Properties

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If the carrying amount exceeds the estimated undiscounted future cash flows, we adjust the carrying amount of the oil and natural gas properties to estimated fair value.

During the year ended December 31, 2023, the Company recognized an impairment loss on proved properties of $9.8 million relating to certain properties in Texas outside of the Company's acreage in the Champions Field.

This impairment was primarily driven by notably lower commodity pricing at the time of measurement of fair value at year-end 2023.

The Company recognized an impairment loss on proved properties of $7.3 million for the year ended December 31, 2022, which related to a decrease in fair value of its historical properties in New Mexico.

General and Administrative Expense ("G&A")

G&A expenses include corporate overhead such as payroll and benefits for our corporate staff, share-based compensation expense, office rent for our headquarters, audit and other fees for professional services and legal compliance.

During the year ended December 31, 2024, the Company recognized a non-cash impairment loss on proved properties of $11.3 million relating to certain properties in Texas outside of the Company's acreage in the Champions field, in addition to historical properties in New Mexico outside of Red Lake.

These impairments were primarily driven by a reduction in reserve volume due to lower well performance assessments based on historical trends.

The affected areas included nine operated producing wells.

The Company recognized a non-cash impairment loss on proved properties of $9.8 million for the year ended December 31, 2023, which related to a decrease in fair value of certain properties in Texas outside of the Company's acreage in the Champions field.

Other Impairments

The cost of proved and unproved oil and natural gas properties are assessed for impairment at least annually or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred.

We compare the undiscounted future cash flows of the oil, natural gas and NGL properties to the carrying amount of the oil, natural gas and NGL properties to determine if the carrying amount is recoverable.

If the carrying amount exceeds the estimated undiscounted future cash flows, we adjust the carrying amount of the oil, natural gas and NGL properties to their estimated fair value.

The Company recognized an impairment loss of $30.2 million for the year ended December 31, 2024, which consisted of a non-cash impairment loss of $28.9 million and a cash impairment loss of $1.3 million related to the termination of the Kinder Morgan CO 2 contract.

The impairment loss relates to the discontinuation of the Company's EOR project, in favor of redeploying the required future capital and salvaging certain assets for use in the Company's conventional vertical and horizontal development programs.

There was no other impairment loss for the year ended December 31, 2023.

General and Administrative ("G&A") Expense

G&A expenses consist of administrative costs and share-based compensation expense.

Administrative costs include corporate overhead such as payroll and benefits for our staff, office costs, fees for professional services such as audit and legal services, technology costs, insurance and other.

Share-based compensation expense reflects costs associated with our stock granted to employees and members of our board of directors.

G&A expenses are reported net of overhead recoveries.

Total G&A expense increased by $1.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Administrative costs, which include payroll, benefits and non-payroll costs, increased by $8.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in administrative costs was primarily attributable to increased employee count, professional services, insurance, technology and office costs, which were impacted by additional needs as a result of the New Mexico Acquisition.

Administrative costs remained flat for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Share-based compensation expense increased by $1.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in share-based compensation expense resulted from the increase in outstanding equity awards due in part to higher employee count as well as expense associated with equity awards attributable to a separation agreement with a former Company executive.

The increase in share-based compensation expense was primarily due to a higher employee count and an increase in outstanding equity awards.

Transaction Costs

Transaction costs represent costs incurred on successful or unsuccessful business combinations or unsuccessful property acquisitions.

The transaction costs of $5.8 million for the year ended December 31, 2023 relate to the New Mexico Acquisition.

During the year ended December 31, 2022, the transaction costs of $2.6 million primarily related to a potential business combination and related financing that the Company pursued but ultimately chose not to consummate due to changing market conditions.

Interest Expense

Interest expense increased by $30.7 million during the year ended December 31, 2023 when compared to the year ended December 31, 2022.

The increase in interest expense was primarily due to the higher debt balances as a result of financing for the New Mexico Acquisition, along with higher interest rates on borrowings under our Credit Facility for the year ended December 31, 2023 when compared to rates for the year ended December 31, 2022.

Additionally, interest expense decreased during 2022 as a result of the Company settling the remaining open position on its previous interest rate swap resulting in a settlement benefit of $1.5 million.

Transaction costs represent costs incurred on successful or unsuccessful commercial transactions, business combinations or unsuccessful acquisitions.

The transaction costs of $1.6 million for the year ended December 31, 2024, primarily relate to the RPC Power Joint Venture, costs associated with the negotiation and closing of our new gas purchase agreement in addition to potential transactions that the Company evaluated but decided not to pursue further.

During the year ended December 31, 2023, the transaction costs of $5.8 million related to the 2023 New Mexico Acquisition.

Interest Expense, net

Interest expense, net increased by $2.5 million during the year ended December 31, 2024, when compared to the year ended December 31, 2023.

The increase in interest expense was primarily due to a full-year effect of the Senior Notes, which were the primary financing for the 2023 New Mexico Acquisition, including amortization of the discount.

Gain/Loss on Derivatives

The Company recognizes settlements and changes in the fair value of its derivative contracts as a single component within other income (expense) on its consolidated statements of operations.

The Company recognizes settlements and changes in the fair value of our derivative contracts as a single component within other income (expense) in our consolidated statements of operations.

We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices.

3 unchanged sentences

Settlements on derivative contracts $ 1,849 $ (17,221)

Non-cash gain on derivatives

23,414 23,683

Non-cash gain (loss) on derivatives (3,514) 23,414

Gain (loss) on derivatives, net $ (1,665) $ 6,193

$ 6,193 $ (51,574)

Our earnings are affected by the changes in value of our derivative portfolio between periods and the related cash received or paid upon settlement of our derivatives.

To the extent the future commodity price outlook declines between periods, we will have mark-to-market gains, while future commodity price increases between measurement periods result in mark-to-market losses.

The gain on derivatives for the year ended December 31, 2023 was $6.2 million compared to a loss on derivatives of $51.6 million for the year ended December 31, 2022.

The change was primarily driven by a $58.0 million decrease in the cash payments on settlements of derivatives due to the decrease in oil and natural gas prices for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Cash gains or losses on settled derivative contracts relate to contracts that settle during the period and are a function of the difference in settled versus contractual prices and the associated hedged volumes for each underlying commodity.

Non-cash gains or losses on derivatives relate to unsettled contracts and are a function of changes in derivative fair values associated with fluctuations in the forward price curves for the commodities relative to contractual pricing and the associated hedged volumes for each underlying commodity for our derivative contracts outstanding.

Income Tax Expense

Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.

Current income taxes represent the amount the Company expects to owe to federal and state tax authorities in the current period, based on our taxable income.

See Note 12 - Income Taxes in the Company's consolidated financial statements in "Item 15.

4 unchanged sentences

Deferred income tax expense

27,589 28,372

Total income tax expense $ 28,074 $ 34,461

$ 34,461 $ 32,844

Effective income tax rate 24.0 % 23.6 %

The rise in our effective income tax rate was primarily due to the New Mexico Acquisition increasing our apportionment in New Mexico, which has a higher state tax rate than where we have historically operated.

The decrease in deferred income tax expense from 2023 to 2024 is primarily due to the 2023 New Mexico Acquisition, which allowed for more accelerated tax depreciation in 2023.

Liquidity and Capital Resources

1 unchanged sentence

Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production.

The Company’s principal liquidity requirements are to finance its operations, fund capital expenditures and acquisitions, make cash distributions and satisfy any indebtedness obligations.

The Company’s principal liquidity requirements are to finance our operations, fund capital expenditures and acquisitions, pay dividends and satisfy any indebtedness obligations.

Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties.

1 unchanged sentence

At times and as needed, we may also issue debt or equity securities, including through transactions under our shelf registration statement filed with the SEC.

In April 2024, the Company issued equity securities and used the proceeds to finance an acquisition, repay outstanding debt and for general corporate purposes.

We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.

Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control.

Likewise, our ability to issue equity and obtain credit facilities on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations.

Likewise, our ability to issue equity, debt and obtain credit facilities on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations.

For further discussion of risks related to our liquidity and capital resources, see "Item 1A.

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As of December 31, 2024, we had a working capital deficit of $54.6 million compared to a deficit of $31.1 million as of December 31, 2023.

The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20.0 million of our working capital deficit at December 31, 2023.

Additionally, increases in our revenue payable, resulting from revenue suspense associated with oil and natural gas properties acquired in the New Mexico Acquisition, contributed to the working capital deficit.

Partially offsetting these higher current liabilities was an increase of $5.0 million in current derivative assets and higher accounts receivable associated with increased oil and natural gas sales.

The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20 million of our working capital deficit at December 31, 2024, and December 31, 2023.

We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits.

Our current derivative assets and liabilities represent the mark-to-market value as of December 31, 2023 of future commodity production

which will settle on a monthly basis through the end of their contractual terms.

This aligns with the receipt of oil and natural gas revenues on a monthly basis.

At December 31, 2024, we had cash on hand of $13.1 million and $285 million of undrawn capacity under our Credit Facility.

The following table summarizes the Company’s cash flows for the years ended December 31, 2024, and 2023:

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Net cash provided by (used in) financing activities $ (100,631) $ 264,379

$ 264,379 $ (37,048)

Operating Activities

The Company’s net cash provided by operating activities increased by $36.9 million, or 22%, to $207.2 million for the year ended December 31, 2023 from $170.3 million for the year ended December 31, 2022.

The increase was primarily driven by a decrease of $58.0 million in payments to settle commodity derivative contracts and an increase in revenues, partially offset by an increase in operating expenses.

Net cash provided by operating activities were $246.3 million for the year ended December 31, 2024, compared to $207.2 million for the year ended December 31, 2023, and primarily consisted of the following:

Year Ended December 31,

(In thousands)

Total revenues

$ 410,181 $ 375,047

Operating expenses (1)

$ (128,653) $ (117,363)

Prepayments from partners

Settlements on derivative contracts $ 1,849 $ (17,221)

Interest paid, net of capitalized interest

$ (31,582) $ (27,140)

Tax liabilities paid, net of refunds

$ (18,084) $ (9,949)

_____________________

(1) Operating expenses include LOE, production and ad valorem taxes, administrative costs, transaction costs and other minor operating expenses.

Net cash provided by operating activities increased $39.1 million, or 19%, compared to year ended December 31, 2023.

Oil and natural gas revenues increased $58.2 million due to an increase in our oil and natural gas production partially offset by a $21.1 million decrease due to lower realized pricing.

Investing Activities

The Company's cash flows used in investing activities increased by $341.3 million to $469.6 million for the year ended December 31, 2023 from $128.3 million for the year ended December 31, 2022.

The increase was primarily due to the $324.7 million for the New Mexico Acquisition.

Investing activities also increased due to higher year-over-year capital spending for additions to oil and natural gas properties of $23.1 million, or 21%, related to the Company's increased drilling and completion activity during the year ended December 31, 2023 compared to the year ended December 31, 2022, partially attributable to the larger asset base following the New Mexico Acquisition.

Net cash flows used in investing activities were $147.8 million for the year ended December 31, 2024, compared to $469.6 million for the year ended December 31, 2023, and primarily consisted of the following:

Year Ended December 31,

(In thousands)

Additions to oil and natural gas properties $ (98,490) $ (134,796)

Net assets acquired in business combination $ — $ (324,686)

Acquisitions of oil and natural gas properties $ (19,597) $ (5,443)

Contributions to equity method investment $ (17,912) $ (3,566)

Additions to midstream property and equipment

$ (10,964) $ —

Capital expenditures for oil and natural gas properties decreased $36.3 million due primarily to lower average well cost.

Cash contributions to our joint venture, RPC Power, increased $14.3 million to fund additional new power generation for self-consumption and for the sale of energy and ancillary services to ERCOT, which is expected to be operational beginning in late 2025 through 2026.

The Company also began construction of midstream infrastructure in New Mexico to increase our oil and natural gas volume capacity, and we currently anticipate the in-service date will be before the end of 2026.

Financing Activities

Net cash flow provided by financing activities increased by $301.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

During the year ended December 31, 2023, the Company had net borrowings on its Credit Facility of $129.0 million and proceeds from issuance of its Senior Notes, net of repayments, of $173.0 million, compared to a net paydown of $9.0 million on its Credit Facility for the same period in 2022.

The increase in proceeds from borrowings was primarily attributable to the New Mexico Acquisition.

In addition, the Company distributed an additional $2.6 million of dividends on common stock during the year ended December 31, 2023 compared to the same period in 2022 as a result of higher outstanding share count and a higher dividend per share.

Net cash flows used in financing activities were $100.6 million for the year ended December 31, 2024, compared to net cash flows provided by financing activities of $264.4 million for the year ended December 31, 2023, and primarily consisted of the following:

Year Ended December 31,

(In thousands)

Proceeds (repayments) under Credit Facility, net $ (70,000) $ 129,000

Proceeds (repayments) under Senior Notes, net of issuance costs $ (20,000) $ 173,000

Payment of common share dividends $ (30,831) $ (27,706)

Proceeds from issuance of common shares, net $ 25,415 $ 2

Deferred financing costs

$ (2,783) $ (7,406)

During 2024, the Company repaid $90 million of debt, net of proceeds compared to net borrowings of $302 million in 2023 and cash dividends increased $3 million, partially offset by our 2024 Equity Offering of $25.4 million.

Credit Facility and Senior Notes

The Company's borrowing base on its Credit Facility was $375 million with outstanding borrowings of $185 million on December 31, 2023, representing available borrowing capacity of $190 million.

On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured Senior Notes of up to $200 million.

The Company's borrowing base on our Credit Facility was $400 million with outstanding borrowings of $115 million at December 31, 2024, representing available borrowing capacity of $285 million.

On February 22, 2023, the Company amended our Credit Facility to, among other things, allow for the issuance of unsecured Senior Notes of up to $200 million.

On April 3, 2023, and concurrent with the closing of the 2023 New Mexico Acquisition, the Company entered into the fourteenth amendment to the Credit Facility to, among other things, increase the maximum facility amount to $1.0 billion and the borrowing base from $225 million to $325 million, resulting in the addition of new lenders to the lending group.

On November 14, 2023, through the semi-annual redetermination, the Company increased its borrowing base to $375 million, resulting in the addition of two new lenders and the exit of one lender.

The Credit Facility is set to mature in April 2026.

On November 14, 2023, through the semi-annual redetermination process and fifteenth amendment, the Company increased our borrowing base from $325 million to $375 million, resulting in the addition of two new lenders and the exit of one lender.

On December 13, 2024, the Company entered into the sixteenth amendment to the Credit Facility to, among other things, extend the stated maturity date from April 2026 to December 2028 (or if any Senior Notes are then outstanding, the date that is 181 days prior to the earliest stated maturity date of such Senior Notes, in this case October 2027) and increase the borrowing base from $375 million to $400 million, resulting in the addition of one new lender to the lending group.

Substantially all of the Company’s assets are pledged to secure the Credit Facility.

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Exhibits and Financial Statement Schedules" for a full discussion of our long-term debt.

Distributions

For the year ended December 31, 2023, the Company authorized and declared quarterly dividends totaling approximately $27.9 million, with $27.3 million paid in cash and $0.6 million payable to holders of restricted stock upon vesting.

For the year ended December 31, 2024, the Company authorized and declared quarterly dividends totaling approximately $31.0 million, with $30.8 million paid in cash and $0.2 million accrued for the holders of restricted stock upon vesting.

For the years ended December 31, 2024, and 2023, the Company paid cash dividends of approximately $0.7 million and $0.5 million, respectively, to holders of restricted stock upon vesting.

Contractual Obligations

As of December 31, 2023, the Company has commitments with its primary midstream counterparty and has purchase commitments totaling $13.1 million related to its 2024 drilling program.

In addition, the Company entered into an agreement to form a joint venture and is committed to contributing its portion of capital expenditures into the joint venture company and further entered into a tolling agreement to commit to providing the natural gas needed for the joint venture.

As of December 31, 2024, the Company had a remaining volume commitment of less than seven years with our primary midstream counterparty in Texas.

The Company also had natural gas delivery commitments under the A&R Tolling Agreement and a remaining equity commitment under the Second amendment to the A&R LLC Agreement of $27.7 million to fund our portion of the 2025 capital budget for the RPC Power joint venture.

Further, the Company entered into a 15-year gas purchase agreement that required an acreage dedication to a midstream counterparty for a significant portion of our oil and gas assets in New Mexico.

This agreement is expected to begin before the end of 2026.

As a result of entering into the gas purchase agreement, the Company is committed to spend approximately $130 million in capital expenditures through 2026 to complete

the initial projects of our midstream buildout plan.

The Company incurred approximately $11 million in 2024.

See Note 15 - Commitments and Contingencies in the Company's consolidated financial statements in "Item 15.

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Significant inputs and judgements are used in determining the fair value of the assets.

The Company utilizes a discounted cash flow model in order to estimate fair value by modeling the present value of future cash flows, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk

and current market conditions associated with the expected cash flow projected.

During the year ended December 31, 2023, the Company recognized a proved property impairment of $9.8 million relating to certain properties in Texas outside of the Company's acreage in the Champions Field.

During the year ended December 31, 2024, the Company recognized a proved property impairment of $11.3 million relating to certain properties in Texas outside of the Company's acreage in the Champions field and certain historical properties in New Mexico outside of the Company's acreage in the Red Lake field.

The Company recognized an impairment loss on proved properties of $9.8 million for the year ended December 31, 2023, relating to certain properties in Texas outside of the Company's acreage in the Champions field.

See Note 7 - Fair Value Measurements in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules" for a full discussion of our impairment analysis.

Oil and Natural Gas Reserves

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Estimates of reserves are forecasts based on engineering data, projected future rates of production and the timing of future expenditures.

The process of estimating oil, natural gas and NGL reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries.

of estimating oil, natural gas and NGL reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries.

Different reserve engineers may make different estimates of reserve quantities based on the same data.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis